Episode 30: Make disruptive innovation work for your small business

Disruption is a fact of small business, but how do you ride the wave when you don’t see it coming? What can you do to keep your small business going strong in an industry that’s failing?

This week on Xero In, we speak to Peter Strong, CEO at COSBOA and former bookstore owner, about his many successful years in retail and overcoming the downturn in printed book sales.

“The people that embrace technology of course are the ones who are going ahead,” Peter said. “The ones who see disruption not as disruption but as a challenge to develop new processes and new products, they’re the ones who are going ahead.”

Tune in for tips on embracing disruption to make your small business thrive.

RS: Yeah, really well. Looking forward to having a conversation with Peter Strong.

JVD: And this conversation I’m going to find really exciting because the bookshop that Peter Strong was the owner of that we’re actually going to talk about, which is Smith’s Alternative Bookshop in Canberra, it was the first organisation that I was friends with on Facebook. What I’m really interested in is finding out why it was that he gave his bookshop a personality and how that was important in him disrupting the industry that he was in in order to I guess keep it operating.

RS: Can’t wait to hear from Peter.

RS: Joining us today is Peter Strong, CEO of COSBOA and also owner of Smith’s Alternative Bookshop. Welcome, Peter.

PS: Thank you.

JVD: What’s the competitive landscape look like for Australia’s 2.2 million small businesses? Where are the challenges coming from and what are the effective techniques they’re using to keep up and keep ahead of them?

PS: The people that embrace technology of course are the ones who are going ahead, the ones who see disruption not as disruption but as a challenge to develop new processes and new products. They’re the ones who are going ahead. The ones who understand the customers, nothing new in that, that’s been the same forever but they’re going ahead and it’s also looking at the international relationships, that’s certainly a big area and you know, more and more businesses are dealing with places you don’t normally hear about like the Philippines, Vietnam, Indonesia.

So there are people out there that are embracing that and to do so, the ones that I’ve seen be most successful at that network with other businesses in Australia, quite often not necessarily, from their industry. So I remember in Canberra, there was a woman who had a gift shop not far from my shop and there was a woman who ran an antiquarian bookshop and did a lot of stuff online and they met, because they did a lot of work in China, they would meet and, and they got to know each other and so they started swapping information and helping each other out and all of a sudden they could save money by saying, “Look, while you’re over there, can you pick this up for me or can you check this out for me?” and so there was this benefit of networking, and networking has always been a great thing for small business and it’s extending across international communities now.

Technology and hardware is also an area of huge opportunities for people that are ready to change. So if your software is old, you’re going to have to update it. The software developers of course, they’re in the situation where they know that things change so much so their software has got to be adaptable. One of the things they do is they join an association where they can and they get information, they get newsletters from their association, from their software developers, whoever it is that they’re from, they get that and they look at it and, and they get the information they need from it, which I suppose is a lesson also for associations to communicate well with their members.

RS: Now, being an owner of a small business in Canberra, you had a bookshop which is obviously in an industry that has been disrupted a lot. What challenges did you have taking ownership of the bookshop in Canberra to make it profitable, to make it survive? Did you have to disrupt yourself?

PS: Well, I think buying a business is a disruption in itself and I’m very glad I did it, of course. I had it for about seven and a half years. I purchased it in 2005 and sold it in 2013. When I purchased it, and the previous owner is a good, good man, he’d said, you know, he’d got tired of it and people go into businesses and you can tell when it’s tired. His stock levels had dropped and there were just a few issues there, which is fine, and so the joy of it was I got to restock the shop, bring it back up to speed, reinvent it, get it on the internet, redo the marketing and that was good fun.

Now, of course after a couple of years, the e-Book sensation came along and that of course created issues which had to be dealt with and with eBooks, and I said to people in those days, “Look, it’s a disruption. It’s an industry thing that the whole industry will have to deal with. It’s not a problem. We have to deal with it.” At the same time, I don’t know if anybody remembers the, the book chain Borders and they moved into town, were very aggressive so that again, that’s competition and we have to deal with that. Now, the thing that really hit the shop hard was the fact that the Canberra government started moving all the car parks from around my shop and all of a sudden, our sales were dropping, you know, we could measure when a car park closed, the sales would drop.

That’s one of the reasons in COSBOA we talk big and long about town planning and how moving car parks to suit the needs of some big businesses is something that is unfair and it causes problems for small business people, not because they’re bad managers but because the government are bad managers. But what, what it meant for me was I had to reinvent myself. I had to look at it and think, “Right. What do I do?” so we went online, certainly embraced Facebook and had a bit of fun on Facebook where the shop itself became a person, so it wasn’t a business, it was a person and so it would talk like a person. The other thing that I did was initially put in a coffee shop, again to make it a destination as well as a place to buy books and eventually after jumping through a few red tape hoops, put in a wine bar…

JVD: [Laughs]

PS: …and along with that came a lot of events. So we had Dan Kelly, he came along and, and did some music and a few other well-known names. It was an event for the international tour of emerging bands, believe it or not, and we had some amazing people go through that shop with their, with their music, etcetera. So it became a place where you could get a book, a lot of events around poetry, a lot of events around book launches, as I say, the bands as well.

When I eventually sold the shop, the, the person who bought that really concentrated on the events and on the food, etcetera and that’s where it continues today, as an event place.

JVD: How did you actually go through and identify how to effectively disrupt yourself to get customers back through the doors?

PS: Oh, that’s a very good question. I must admit, I’d sit down with my staff at the time and talk about how to do that.

The customers were all going through that change of, “Well, I can get the book cheaper online, you know, do I…?” and a lot of people still supported the shop but there was this problem around they could get it quicker online whereas with, with a traditional bookshop it would take one to two weeks.

Now, the interesting thing is the way the whole of the industry dealt with that, and I’m still on the Board of the Australian Bookseller’s Association and there were some shops that disappeared as happens in times of change and there are others that went through a hard time but two Christmases ago, the independent bookshops started to grow again. Their sales went up last Christmas. On average their sales went up again because they really directed their work at selling online so what was available was online. You have to be online these days.

You know, plenty of stories of someone walking into a shop saying, “Look, I’ve got a Kindle. Can you recommend an eBook for my auntie or someone?” and you think, “Well, hang on a minute” and you have to say to the customer, “Look, you know, if I do that, then you’re going to take what is my intellectual property, you know, which is my knowledge of books and go to Amazon. What’s in this for me?” So we had to go through the education of customers about, “Well, you know, if you’re going to ask for that, then you can’t expect the bookshop to be here any longer” and that applies to a whole range of other retail outlets in particular. And interestingly the sales of eBooks have plateaued but certainly the sales of eReaders have disappeared. What did someone say? Now you put your eReader in with your fondue sets from the 1970s…

JVD: [Laughs]

PS: …you know, that’s how often you use them. So yeah, the change had to be managed. The bookshops, the owners, the staff that managed it came out the other end.

RS: And there’s a lot of competition, not just in the bookkeeping space. I mean, what are we? 2.2 million small businesses in Australia?

PS: Yeah.

RS: Are you seeing a change in the way that competition is dealt with? You know, what’s the current health or landscape or climate for small businesses in Australia at the moment?

PS: Certainly the appetite from all parties to deal with small business better is there without a doubt and, and I think that’s because this realisation that we’re people has sunk in. It’s taken a few years but it’s sunk in really hard and the fact that we vote has sunk in as well and that’s been a really important message. Now, having done that, then they had to get their heads around, “Well, what does that mean?”

The other one is the definition of a small business. At the moment for tax purposes it’s a turnover of less than 2 million and that’s way too low and the politicians I speak to and the regulators I speak to, they know that. They want to increase it to much more than that but what it comes down to is how that impacts upon the budget. So again, people are working towards an outcome that’s better for us. They’ve just got to find a way of doing it.

Now, the other issue, this big issue for us is the dominant players. Most big businesses in our opinion are fine and of course they are. They need us and we need them. So as much as that sounds very political, and it is, we’ve certainly got that message out there, that one mob have got money and the other ones have got votes. You’re going to have to find a way of looking after everybody or find the best group to look after, which in our opinion of course is small business. If the small business community is suffering, so is the economy. If Coles and Woolworths are going ahead, doesn’t mean the economy is.

JVD: I think one of the interesting things that you’ve touched on is we don’t tend to think about small businesses as being really international players but in actual fact not only are small businesses increasingly finding partners overseas but they’re also finding suppliers and markets overseas.

PS: Well, that’s a very good point and one of the things I used to enjoy in the shop was when the order would turn up from a company called Baker & Taylor which were a United States supplier and it was always exciting because the types of books we got from them were quite different by the nature of it and it’s funny, isn’t it, the excitement, and we’d ring customers that day and say, “Look, our order has just come in from Baker & Taylor. I know you’re interested in philosophy books. There’s a couple of ones here that you may want to look at” and the customers would come in and they mightn’t buy it but they used to love the phone call and they used to love looking at these very new books and that would be the same with psychology and other areas. So the international side of it is, is done properly, very exciting.

There were some, you know, concerns we have around the way it’s delivered, you know, relying upon the quality of what turns up but again, if you’re a member of an association, you can find out about that before it damages you or does too much damage at all.

RS: And if you were going to buy a alternative bookshop today, what would you do different this time around?

PS: I suppose the difference is somehow or other I would look ahead to where the urban planning was going with that. That was the biggest thing I always remember, is those car parks closing and I hear that from lots of people. It was the foot traffic. It was the difficulty for people to get there. So I’d go and look at that as best I can and then I think I’d certainly have joined the, the Booksellers Association earlier than I did and gone and talked to them. That’s a thing I certainly would have done, and then when it comes to when I put the wine bar in and the coffee shop, you know, if I’d gone to some people for some help with that, it would have happened quicker.

That’s just a learning curve that I would have liked to have gone through and when I open my next business, I’ll have gone through it and I’ll be better for it.

RS: Why did you choose the book industry when that market where published content and the distribution of the published content was being disrupted?

PS: You’re right and it’s a good point. Maybe I should have done a bit more work on it. Coming back to what I said before, I should have got onto the Booksellers Association, etcetera. But I still would have got it. I mean, the idea was that I would eventually retire into it.

JVD: [Laughs]

PS: Yeah, and that was the idea. And one of the reasons I sold it is I was doing this job, the COSBOA job as well as that, and as the COSBOA job got busier and then, you know, I had to make a decision, which I did, the right decision.

With any business you go into now, the disruption has got to be considered, and even the word disruption, I think it’s been around forever. If you’re going into a coffee shop, you know, think a thousand times before you do it. There’s people who know coffee. They know cafés. They can make a coffee. They know staff but I’ve seen, and we’ve all seen too many people that buy a coffee shop thinking it’s going to be fantastic and it’s not and they suffer and they lose money.

JVD: The other classic is buying a country pub. [Laughs] So many tree changers I know have headed off to buy a country pub and the other thing is too, there’s, there’s often this idea that going into a small business often starts out as a retirement plan but then ends up being a lot more work than people think it’s going to be.

PS: Well, I remember doing some research on women in business in rural Australia for various reasons but, you know, one of the things that came up is a lot of those people would do it for lifestyle reasons and they’d say in the end, “Look, in the end I was better off staying at work, you know, because I wasn’t aware of all the things I had to do for it and to make a dollar, you know, I had to put a lot of work and time and effort into it”.

JVD: And I guess so when it comes down to it, the sorts of things we’ve been talking about here is when it comes to disruption, small businesses need to do a couple of things. They need to keep up with the, the technology landscape, they need to pay attention to coopetition and partnering opportunities, both in Australia and around the world. They need to keep up with business change and the way philosophically business is changing. They need to be able to ask for help [laughs]…

PS: Yes, yes.

JVD: …which is something none of us do very well and they should really think about joining their local associations right from the word go.

PS: From the Booksellers Association point of view, it’s interesting. We’re having a lot of new members come on board and quite a few of them are people who said, “I’m thinking of starting a shop and I want to join and find out more” and you think, “Good on them. Good on you, you know, that’s a really good thing to do”.

RS: Well, Peter, thank you very much for your time and talking us through owning and not owning an alternative bookshop. We appreciate it.

PS: Thank you very much.

JVD: You know what was really interesting about that conversation? I knew the story roughly of what had happened with Smith’s Alternative Bookshop but I never realised the impact that things like parking could have on the way a small business functions.

RS: Yeah. It’s incredible, isn’t it, the foot traffic and the walk-by that has to flow in from the catchment area and the impact that has on small business.

JVD: Absolutely, and when you’ve got councils making decisions that might be influenced by other people or influenced by other factors that aren’t the survival of your business, it can be really hard to get a voice.

RS: Yeah, and Peter was also making the point that disruption is different from competition in the sense that he only saw increased competition as opposed to the industry being disrupted as a whole.

JVD: Absolutely. I don’t mind the idea of listening to jazz and drinking some wine while I’m looking at books at all. How about you, Rob?